Question 1

In long-run equilibrium,compared to a perfectly competitive market,a monopolistically competitive industry produces a ________ level of output and charges a ________ price.

Accepted Answer

In the long-run equilibrium of a monopolistically competitive industry, firms have some degree of market power, as they produce differentiated products that are not perfect substitutes. This means that they can charge a higher price than in perfect competition. However, they also face some competition, which limits their ability to charge a very high price. As a result, monopolistically competitive firms produce a lower level of output than in perfect competition but charge a higher price. Therefore, option C is the best choice among the given options.

Question 2

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive.Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being?

Accepted Answer

Some economists believe that monopolistically competitive markets benefit consumers because they are able to buy a differentiated product more closely suited to their tastes, even if they have to pay a price greater than marginal cost and the product is not produced at minimum average total cost. This variety of products also creates a competitive dynamic that can lead to innovation and improved products, benefiting consumers further.

Question 3

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is

Accepted Answer

The answer of Compared to a perfectly competitive firm,the demand...

Question 4

Only one of the following statements is correct.The statements compare perfectly competitive (PC)markets and monopolistically competitive (MC)markets.Which statement is correct?

Accepted Answer

The answer of Only one of the following statements is...

Question 5

In the long run,firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms

Accepted Answer

In the long run, both monopolistically competitive and perfectly competitive firms earn zero economic profits. However, monopolistically competitive firms do not produce at minimum average total cost as they have some degree of market power and are able to charge a price above marginal cost. This results in a higher cost of production compared to perfectly competitive firms which produce at minimum average total cost. Therefore, choice (C) is correct.

Question 6

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

Accepted Answer

Excess capacity in monopolistically competitive firms refers to their operation at a level of output where they do not achieve the lowest possible average total cost, which is not producing at the minimum point on their average total cost curves.

Question 7

Figure 10-17 -Refer to Figure 10-17.In the long run,why will the firm produce Q_f units and not Q_gunits,which has a lower average cost of production?

Accepted Answer

Even though the average cost of production is lower if the firm produces Q_g units, in the long run the firm has to charge a price below average cost to sell the output, resulting in a loss. Thus, the firm will produce Q_f units to be able to sell its output at a price above average cost and make a profit.

Question 8

Figure 10-18 
-Refer to Figure 10-18.The diagram demonstrates that

Accepted Answer

The answer of Figure 10-18 
-Refer to Figure 10-18.The diagram...

Question 9

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets,firms

Accepted Answer

The answer of Long-run equilibrium in a monopolistically competitive market...

Question 10

Which of the following statements is true about monopolistically competitive firms?

Accepted Answer

Monopolistically competitive firms have some degree of market power due to product differentiation, allowing them to raise prices without losing all customers, unlike perfectly competitive firms which are price takers and would lose customers if they tried to raise prices above the market level.

Question 11

What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?

Accepted Answer

In a monopolistically competitive market, firms have some ability to set prices above marginal cost due to product differentiation. However, consumers still have the option to choose from a variety of products, each with its own unique features and qualities. This means that consumers may pay a price greater than marginal cost, but they have the luxury of choosing products that are more suited to their tastes and preferences. Therefore, the trade-off for consumers is paying a higher price for a more customized product.

Question 12

Figure 10-18 
-Refer to Figure 10-18.Which of the following statements is true?

Accepted Answer

The answer of Figure 10-18 
-Refer to Figure 10-18.Which of...

Question 13

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm will produce where marginal revenue is equal to marginal cost but will charge a price higher than marginal cost to cover its differentiated product. This means that price is not equal to marginal cost, making option D the incorrect characteristic. Options A, B, and C are all correct characteristics of a monopolistically competitive firm in long-run equilibrium.

Question 14

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive.Which of the following offers the best reason why some economists believe that monopolistically competitive markets are less efficient than perfectly competitive markets?

Accepted Answer

Allocative efficiency occurs when resources are allocated effectively and efficiently to meet the demands of consumers. In monopolistically competitive markets, firms have some control over pricing and can charge a higher price than in a perfectly competitive market. This leads to a misallocation of resources as consumers pay more than they would in a perfectly competitive market. Productive efficiency occurs when a firm produces at the lowest point on its average total cost curve. However, in monopolistically competitive markets, firms may not achieve productive efficiency because they have some control over pricing and can charge a higher price than in a perfectly competitive market. Therefore, monopolistically competitive markets are considered less efficient than perfectly competitive markets.

Question 15

Monopolistically competitive firms have downward-sloping demand curves.In the long run,monopolistically competitive firms earn zero economic profits.These two characteristics imply that in the long run

Accepted Answer

Monopolistically competitive firms have excess capacity because they produce at a quantity where their average total cost is higher than what would be produced at minimum efficient scale. This leads to firms producing less than what would be produced in a perfectly competitive market, resulting in unused or excess capacity. Therefore, in the long run, monopolistically competitive firms do not achieve allocative efficiency or productive efficiency, and do not earn economic profits.

Question 16

In both monopolistically competitive and perfectly competitive industries,

Accepted Answer

The answer of In both monopolistically competitive and perfectly competitive...

Question 17

If a monopolistically competitive firm has excess capacity,

Accepted Answer

The answer of If a monopolistically competitive firm has excess...

Question 18

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

Accepted Answer

In perfect competition, firms achieve both productive and allocative efficiency, meaning that they produce at minimum cost and produce the quantity demanded at the true market price. In contrast, under monopolistic competition, firms do not achieve either productive or allocative efficiency. They have some market power to set prices above marginal cost, leading to allocative inefficiency, and they do not produce at minimum cost, leading to productive inefficiency. The main difference, therefore, is that perfect competition leads to both productive and allocative efficiency, while monopolistic competition leads to neither.

Question 19

Consumers in monopolistically competitive markets face a trade-off between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.

Accepted Answer

In monopolistically competitive markets, firms have some market power and can charge prices greater than marginal costs in order to differentiate their products and appeal to consumers' preferences. Consumers then face a trade-off between paying these higher prices for more closely suited products, or seeking out cheaper alternatives that may not be as closely suited to their tastes.

Question 20

In contrast with perfect competition,excess capacity characterises monopolistic competition.Excess capacity is due to which of the following?

Accepted Answer

In monopolistic competition, firms do not produce at the minimum point on their average total cost curves due to the downward-sloping demand curve they face. Instead, they produce where their demand curve is tangent to their long-run average total cost curve, which typically does not coincide with the minimum point of the average total cost curve, leading to excess capacity.

Quiz 10: Monopolistic Competition

In long-run equilibrium,compared to a perfectly competitive market,a monopolistically competitive industry produces a level of output and charges a price.

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is

Only one of the following statements is correct.The statements compare perfectly competitive (PC) markets and monopolistically competitive (MC) markets.Which statement is correct?

In the long run,firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

Figure 10-17 -Refer to Figure 10-17.In the long run,why will the firm produce Q_f units and not Q_gunits,which has a lower average cost of production?

Figure 10-18 -Refer to Figure 10-18.The diagram demonstrates that

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets,firms

Which of the following statements is true about monopolistically competitive firms?

What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?

Figure 10-18 -Refer to Figure 10-18.Which of the following statements is true?

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

Monopolistically competitive firms have downward-sloping demand curves.In the long run,monopolistically competitive firms earn zero economic profits.These two characteristics imply that in the long run

In both monopolistically competitive and perfectly competitive industries,

If a monopolistically competitive firm has excess capacity,

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

Consumers in monopolistically competitive markets face a trade-off between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.

In contrast with perfect competition,excess capacity characterises monopolistic competition.Excess capacity is due to which of the following?

Quiz 10: Monopolistic Competition

In long-run equilibrium,compared to a perfectly competitive market,a monopolistically competitive industry produces a ________ level of output and charges a ________ price.

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is

Only one of the following statements is correct.The statements compare perfectly competitive (PC) markets and monopolistically competitive (MC) markets.Which statement is correct?

In the long run,firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

Figure 10-17 -Refer to Figure 10-17.In the long run,why will the firm produce Qf units and not Qg units,which has a lower average cost of production?

Figure 10-18 -Refer to Figure 10-18.The diagram demonstrates that

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets,firms

Which of the following statements is true about monopolistically competitive firms?

What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?

Figure 10-18 -Refer to Figure 10-18.Which of the following statements is true?

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

Monopolistically competitive firms have downward-sloping demand curves.In the long run,monopolistically competitive firms earn zero economic profits.These two characteristics imply that in the long run

In both monopolistically competitive and perfectly competitive industries,

If a monopolistically competitive firm has excess capacity,

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

Consumers in monopolistically competitive markets face a trade-off between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.

In contrast with perfect competition,excess capacity characterises monopolistic competition.Excess capacity is due to which of the following?

In long-run equilibrium,compared to a perfectly competitive market,a monopolistically competitive industry produces a level of output and charges a price.

Figure 10-17 -Refer to Figure 10-17.In the long run,why will the firm produce Q_f units and not Q_gunits,which has a lower average cost of production?